Crypto AG: The NSA's Trojan Whore?

Crypto AG: The NSA's Trojan
Whore?

by Wayne Madsen

From: http://www.100megsfree4.com/farshores/crypto.htm

It may be the greatest intelligence scam of the century: For
decades, the US has routinely intercepted and deciphered top
secret encrypted
messages of 120 countries. These nations had bought the world's
most sophisticated and supposedly secure commercial encryption
technology
from Crypto AG, a Swiss company that staked its reputation and
the security concerns of its clients on its neutrality.
The purchasing nations, confident that their communications were
protected, sent messages from their capitals to embassies, military
missions, trade offices, and espionage dens around the world,
via telex, radio, teletype, and facsimile. They not only conducted
sensitive
albeit legal business and diplomacy, but sometimes strayed into
criminal matters, issuing orders to assassinate political leaders,
bomb commercial
buildings, and engage in drug and arms smuggling.

All the while, because of a secret agreement between the National
Security Agency (NSA) and Crypto AG, they might as well have been
hand delivering the message to Washington. Their Crypto AG machines
had been rigged so that when customers used them, the random encryption
key could be automatically and clandestinely transmitted with the
enciphered message. NSA analysts could read the message traffic
as easily as they could the morning newspaper.

The cover shielding the NSA-Crypto AG relationship was torn in
March 1992, when the Iranian military counterintelligence service
arrested Hans Buehler, Crypto AG's marketing representative in
Teheran. The Iranian government charged the tall, 50ish businessman
with spying for the "intelligence services of the Federal
Republic of Germany and the United States of America." "I
was questioned for five hours a day for nine months," Buehler
says. "I was never beaten, but I was strapped to wooden benches
and told I would be beaten. I was told Crypto was a spy center" that
worked with foreign intelligence services.

Despite prolonged interrogation, Buehler - who had worked for
Crypto AG for 13 years and was on his 25th trip to Iran - apparently
maintained his ignorance. "I didn't know that the equipment
was bugged, otherwise the Iranians could have gotten it out of
me by their many methods."

With millions of dollars in contracts and a major international
spy operation at stake, the company was eager to make the incident
and Buehler go away, even though the salesman had brought in 40
percent of Crypto's 100 million Swiss franc sales revenue. Crypto
bought Buehler's freedom with a $1 million payment to the Iranians,
returned him to Switzerland, and then, astonishingly, fired him
and ordered the bewildered salesman to repay the bond.

The cover-up backfired, however, when current and former Crypto
employees came to Buehler's defense and shared their first-hand
knowledge of manipulated cipher equipment.

"I hold proofs [sic] of the rigging of code machines," said
an unidentified former Crypto AG engineer. "Fifteen years
ago, I saw American and German engineers doctoring our machines.
It took me some time until I was certain about the manipulations.
The proofs: technical documents. ... I put them in a bank safety
deposit box. Then I informed the federal prosecutors office in
Berne. There were many conversations. Suddenly, these contacts
were broken off and the affair petered out."

The engineer told another reporter: the schemes and the cipher
keys were created by them [NSA and BND (Bundesnacrichtendienst,
the German intelligence service)]. I immediately, discreetly, notified
the Swiss prosecutors. There was an investigation. I was never
able to find out the result. Today, the Buehler affair brings everything
out in the open again. And, I'm afraid. What happened to Hans Buehler
could happen to any other salesperson of Crypto AG. It's not a
question of attacking this company; it's a question of saving lives....

When the Swiss media began to reveal the background of Buehler's
story, Crypto AG responded with a lawsuit in an attempt to quash
the story and muzzle Buehler. The suit was settled days before
former Crypto engineers were to testify that they thought the machines
had been altered. The parties agreed not to disclose the settlement
and Crypto sought to reassure its clients. Informed sources in
Switzerland and the Middle East confirmed that Crypto AG settled
because it, and the NSA and BND, didn't want to reveal anything
in court.

Nevertheless, the damage to Crypto AG's credibility was already
done. Customers from Saddam Hussein to the Pope grew nervous. Informed
of the details around the Hans Buehler incident, the Vatican --
which uses Swiss cipher machines to secure diplomatic communications
transmitted from the Holy See to the many papal nuncios around
the world -- showed a marked lack of charity. An official branded
the perpetrators "bandits!"

Swiss Cheese Neutrality
Although the Iranians may have been technically wrong about Buehler's
complicity in the massive deception, they were right that something
was rotten at Crypto AG. And even before the firing of Hans Buehler,
some of Cypto's engineers were ambivalent about secret deals with
the NSA.
"
At first, I was idealistic," said Juerg Spoerndli, who left
Crypto in 1994. "But I adapted quickly. ... The new aim was
to help Big Brother USA look over these countries' shoulders. We'd
say, 'It's better to let the USA see what these dictators are doing.' " Soon,
however, Spoerndli grew apprehensive over the manipulation. "It's
still an imperialistic approach to the world. I don't think it's
the way business should be done." Ruedi Hug, another former
Crypto AG engineer, was also critical. "I feel betrayed," he
declared. "They always told us, We are the best. Our equipment
is not breakable, blah, blah, blah. ... Switzerland is a neutral
country. "

Apparently not. A document released in 1995 by Britain's Public
Records Office indicates that Switzerland and NATO concluded a
secret deal in 1956.

The "Top Secret" document, dated February 10, 1956,
with the reference "prem 11/1224," was written by the
famous British World War II figure, Field Marshal Bernard L. Montgomery.
While "Monty" was a vice-commander of NATO, he discussed
a secret alliance with Swiss Defense Minister Paul Chaudet. In
peacetime, Switzerland would be officially neutral, but in wartime,
it would side with NATO.

A US document released in 1995 shows Switzerland's importance
to US national security. A Presidential directive on national security
prepared for President Truman states that "Switzerland ...
delivers precision instruments and other materials necessary for
the armament of the USA and NATO countries [emphasis added]." Germany's
BND, too, has apparently cooperated with the US encryption rigging
scheme through Siemens Defense Electronics Group of Munich.

A previous director of Siemens called Crypto AG a "secret
Siemens daughter," while a former Crypto AG financial director
said, "the owner of the firm [Crypto] is the Federal Republic
[of Germany]."

The Siemens connection to Crypto was remarkably incestuous. Siemens
provided technical assistance for the machine manipulation process.
Suspicion about the German electronics giant's role in Crypto's
operations was heightened when it was reported that Siemens helped
raise the $1 million to spring Buehler from his Teheran prison
cell.

In fact, after revelations of the Crypto-Siemens association hit
the Swiss press, Crypto's managing director Michael Grupe informed
the employees that the advisory board to Crypto's board of directors
was being dissolved. The two advisers -- Alfred Nowosad and Helmut
Wiesner -- were both full-time Siemens employees. With the world
media describing the company as a silent partner of German and
American signals intelligence (sigint) agencies around the world,
Grube announced that "Crypto is changing its profile."

The German government's contribution to the encryption rigging
scheme also included its pressuring another Swiss firm, Gretag
Data Systems AG, to allow a "red thread" program to be
installed in the encryption software. "Red threading" is
the software equivalent of sending in a Greek Trojan horse. Once
owned by AT&T, this encryption manufacturer was acquired in
1995 by Information Resources Engineering (IRE), Inc. of Baltimore,
Maryland.19 Interestingly, IRE is staffed by a number of ex-NSA
cryptographic engineers. A third Swiss encryption company, Info
Guard AG, was fully acquired by Crypto AG on June 16, 1994. Info
Guard, which had been 50 percent owned by Crypto AG, primarily
sells encryption units to banks in Switzerland and abroad.

Although German and American sigint agencies were involved in
manipulating Crypto's cipher machines, Motorola, one of the NSA's
major US contractors, performed the actual technical lteration,
according to a former Crypto AG chief engineer who was personally
involved in the manipulation process.

Crypto Huddle
Once the cipher machines were rigged to include the secret decryption
key, the BND and NSA codebreakers could use the transmitted key
to read any message sent by Crypto AG's 120 country customers.
One previous Crypto AG employee contends that all developmental
Crypto AG equipment had to be sent for approval to the NSA and
to the German Central Cipher Bureau (Zentralstelle für Chiffrierung
[ZfCH]), now the Federal Information Security Agency (Bundesamt
für Sicherheit in der Informationstechnik [BSI] which is also
Department 62 of the BND) in Bad Godesberg, near Bonn.
In other cases, Crypto AG was apparently forced to market encryption
equipment manufactured in the US, sent to Crypto, and passed off
as Swiss equipment. In the 1970s, as Crypto was moving from electro-mechanical
to computerized crypto units, a former Crypto AG engineer in Switzerland
inspected one of the first prototype computerized machines sent
from the US. He remarked that since the code could be easily broken,
he found the machine useless. But when he told his superiors that
he could improve the encryption process if he was given access
to the mathematical functions, two US cryptographic "experts" refused
to disclose the information.

According to a confidential Crypto AG memorandum, one of the NSA "experts" may
have been Nora L. Mackabee, an NSA cryptographer who is now retired
on a horse farm in Maryland along with her husband Lester, another
retired NSA employee. Between August 19 and 20, 1975, three Crypto
AG engineers huddled with Mackabee (identified as representing "IA",
most likely "intelligence agency") along with three Motorola
engineers and one other American, Herb Frank. One Motorola engineer
recalled that Frank was probably from another US intelligence agency
based in northern Virginia but described him as a non-technical
person who seemed to be making the administrative arrangements
for Mackabee.

Crypto engineer Juerg Spoerndli, who was responsible for designing
the firm's encryption equipment, had heard from older engineers
about the visits in earlier years by mysterious Americans. He concluded
that NSA was ordering the design changes through German intermediaries.
He confirmed the manipulation and admitted that in the late 1970s,
he was "ordered to change algorithms under mysterious circumstances" to
weaken his cipher units.

Privacy? Ha!
Although the Buehler incident lent credence to the NSA Trojan Horse
theory, it was not the first time that suspicions were raised.
Teheran had become concerned in 1987 when US official claimed "conclusive
evidence that Iran ordered the kidnapping" of ABC News Beirut
correspondent Charles Glass. Washington's alleged proof was coded
Iranian diplomatic cables intercepted by the NSA between Teheran
and the Hezbollah (Party of God) terrorist group in Lebanon via
Iran's embassies in Beirut and Damascus.
The next year, when a terrorist bomb brought down PanAm Flight
103 over Lockerbie, Scotland, it seems the NSA gained information
by intercepting the communications of Iranian Interior Minister
Ali Akbar Mohtashemi. It was apparently these messages that implicated
Iran, not Libya.

One intelligence summary, prepared by the US Air Force Intelligence
Agency, cites Iran's Mohtashemi as the mastermind. Released in
redacted form pursuant to a Freedom of Information Act (FOIA) request
by lawyers for the bankrupt Pan American Airlines, it states: Mohtashemi
is closely connected with the Al Abas and Abu Nidal terrorist groups.
He is actually a long-time friend of Abu Nidal. He has recently
paid 10 million dollars in cash and gold to these two organizations
to carry out terrorist activities and was the one who paid the
same amount to bomb PanAm Flight 103 in retaliation for the U.S.
shoot-down of the Iranian Airbus. Mohtashemi has also spent time
in Lebanon.

An Israeli intercept of Iranian diplomatic coded communications
between Mohtashemi's Interior Ministry in Teheran and the Iranian
embassy in Beirut (where Mohtashemi once served as ambassador)
revealed more than two years before Buehler was arrested by Iran
that the Shi-ite cleric transferred $1.2 to $2 million used for
the bombing of PanAm 103 to the Popular Front for the Liberation
of Palestine-General Command headed by Ahmed Jibril. Such revelations
must have made the Iranians extremely suspect of the security of
their diplomatic traffic.

The role of Israel may be explained by a little-reported intelligence
alliance. NSA maintains a link with the Israeli sigint entity, "Department
8200," located in northern Tel Aviv at Herzliya. The sigint
link is said to involve the British Government Communications Headquarters
(GCHQ) base on Cyprus. Israel's ability to crack the Iranian Crypto
AG codes indicates that Israel had access to the key decoding programs.
The ease with which the West was reading Iranian coded transactions
obviously meant that someone in Israel's sigint services possessed
the decryption keys.

Then in 1992, Buehler was arrested. As the Swiss authorities struggled
to put the pieces together, they at first believed that the Iranian
secret services were retaliating for the arrest in Switzerland
of Zeynold Abedine Sarhadi, an employee of the Iranian embassy
in Berne and a nephew of former Iranian President Hashemi Rafsanjani.
Swiss police had arrested Sarhadi in early 1992 and were planning
to extradite him to France to face trial for the 1991 assassination
in Paris of former Iranian Prime Minister Shahpour Bakhtiar.

On August 7, 1991, one day before Bakhtiar was found dead with
his throat slit, the Teheran headquarters of the Iranian Intelligence
Service, vevak, transmitted a coded message to Iranian diplomatic
missions in London, Paris, Bonn, and Geneva, inquiring "Is
Bakhtiar dead?"

The Iranians concluded from Western press reports that British
and American sigint operators had intercepted and decoded the message
(as reported by L'Express of Paris) and knew that Teheran was behind
the assassination. They realized that their code had been broken,
looked to their Crypto AG cipher machines, and picked up Buehler.

According to one European source, they may also have been tipped
off by Stasi files of the ex-East German regime that found their
way to Iran and revealed the Crypto AG ruse. In any case, the Iranians
immediately began grilling prisoner 01228-1 about the role he and
his company played in giving Iranian and Libyan codes to the US.

Iran knew that Bakhtiar's assassination had compromised the intelligence
functions of the Iranian UN mission and embassy in Geneva. The
NSA had already identified one of the assassins, Mohammed Azadi,
from intercepts of his phone calls from a pay phone in the town
of Annecy in Savoy and an Istanbul apartment to the Iranian diplomatic
mission in Geneva.

On December 6, 1994, a special French terrorism court convicted
two Iranians of murdering Bakhtiar, but strangely, it acquitted
Sarhadi. "Justice has not been entirely served [for] reasons
of state," complained Bakhtiar's widow bitterly. Those "reasons" may
have included a tacit agreement among France, Switzerland, the
German BND, and the NSA to spare Sarhadi in order to avoid producing
captured transmissions and preserve the questionable secrecy surrounding
the Crypto AG cipher manipulation program. It was not only the "rogue
states" that were targeted.

During the sensitive Anglo-Irish negotiations of 1985, the NSA's
British counterpart, the GCHQ, was able to decipher the coded diplomatic
traffic being sent between the Irish embassy in London and the
Irish Foreign Ministry in Dublin. It was reported in the Irish
press that Dublin had purchased a cryptographic system from Crypto
AG worth more than a million Irish pounds. It was also reported
that the NSA routinely monitored and deciphered the Irish diplomatic
messages. Later, during the Falklands War, British GCHQ operators
were able to decrypt classified Argentine message traffic because
the Argentineans were using rigged Crypto AG cipher machines. Former
British Foreign Office minister Ted Rowlands publicly stated that
GCHQ had penetrated Argentine diplomatic codes.

US: Crypto Bully
If it turns out that the extent of communications interception
is as broad as suspected, the international implications are profound.
Every country in the world that used secure communications is potentially
affected. Some have sought to abandon Crypto AG, but found their
options limited.
The US had at times required purchase of specific machines as a
condition for favors. Pakistan was allegedly granted American military
credits with only one provision, that it buy its encryption equipment
from Crypto AG. Additionally, "It is not unheard of for NSA
to offer preferential export treatment to a company if it builds
a back door into its equipment," says one person with long
experience in the field. "I've seen it. I've been in the room."

Several countries abandoned Crypto AG but failed to ensure secrecy.
The Libyans switched to Gretag units after the NSA cited secret
communications to allege Libyan involvement in the 1986 La Belle
disco bombing in West Berlin. One senior US official said the fact
that the Libyans were making their codes more difficult to crack
would "make our job tougher." But the NSA seemed to have
the Gretag base covered as well. According to one knowledgeable
cryptographic industry expert, NSA's program to co-opt the services
of encryption manufacturrs probably extends to all those within
reach of NSA operatives. US cryptographic companies would be definite
candidates for such participation.

The NSA program also likely extends to companies in NATO and pro-US
countries which have close relationships with GCHQ, NSA, and the
BND. Even neutral countries_ firms are not off-limits to NSA manipulations.
A former Crypto AG employee confirmed that high-level US officials
approached neutral European countries and argued that their cooperation
was essential to the Cold War struggle against the Soviets. The
NSA allegedly received support from cryptographic companies Crypto
AG and Gretag AG in Switzerland, Transvertex in Sweden, Nokia in
Finland, and even newly-privatized firms in post-Communist Hungary.

In 1970, according to a secret German BND intelligence paper,
supplied to the author, the Germans planned to "fuse" the
operations of three cryptographic firms-Crypto AG, Grattner AG
(another Swiss cipher firm), and Ericsson of Sweden. Securocrats
often turn to the boogeyman of "rogue" nations in order
to justify the expense and ethical necessity of eavesdropping on
all forms of international communication, but in reality many intercepts
involve messages by neutral or allied nations.

NSA's 1993 release of the World War II era "magic" intercepts
under FOIA pressure revealed that US military intelligence read
not only messages by Axis nations, but also intercepted and decrypted
the top secret communications of Allied and neutral nations. Switzerland
was among the more than 30 countries whose messages were being
read. Since Swiss-made cipher machines were used by many governments
at the time, it is likely that the US has been reading such messages
for over half a century. An early example is the use of top secret
intercepts by the US delegation to the 1945 founding convention
of the United Nations in San Francisco.

Fifty years of intercepted communication have given the US and
its co-conspirators trade, diplomatic, economic and strategic advantages.
By intercepting the "bottom line" negotiating positions
of foreign governments, they have been able to shape international
treaties and negotiations in their own favor: They will know, for
example, the exact health status of the king of Saudi Arabia, the
secret financial transactions of the president of Peru, the negotiating
position of South Africa's trade delegation to the World Trade
Organization, or the anti-abortion strategy of the Pope in the
United Nations. Such information, presented daily to the president
and the secretary of state in their intelligence briefings, is
extremely useful and allows the US to play high-stakes diplomatic
poker with a mirror behind everyone else's back.